BOISBRIAND, Quebec -- General Motors of Canada Ltd.'s Firebird/ Cainaro plant is a hub of activity in this small suburban Montreal town. The 3,200 employees work nearly around the clock as the five-mile-long assembly line cranks out 52 vehicles per hour. Car carriers stand ready to whisk the vehicles away from the plant.But driving southwest on Highway 401 about 320 miles back to GM's Canadian headquarters

BOISBRIAND, Quebec -- General Motors of Canada Ltd.'s Firebird/ Cainaro plant is a hub of activity in this small suburban Montreal town. The 3,200 employees work nearly around the clock as the five-mile-long assembly line cranks out 52 vehicles per hour. Car carriers stand ready to whisk the vehicles away from the plant.

But driving southwest on Highway 401 about 320 miles back to GM's Canadian headquarters just outside of Toronto, you'd be hard pressed to find even one '95-model Firebird or Camaro. The same goes for two dozen other vehicles produced by seven different manufacturers at Canadian assembly plants.

While the great white north is an attractive place to produce vehicles, Canadian consumers are increasingly skittish about spending on new cars and trucks: April marked the fourth consecutive monthly year-to-year decline in Canada's light-vehicle sales, and the worst may not be over. Consumer confidence is at its lowest level in 18 months, according to the Conference Board of Canada. Most automakers are saying that at least for the next several months, they'd be happy just to break even with year-ago sales.

"Canadians still don't have confidence in the economy; there's still restructuring going on," says Jim Miller, Honda Canada Inc. senior vice president of sales and marketing. "A number of major corporations are talking layoffs. And everyone is concerned about the strength of the dollar ... I think the biggest challenge facing Honda, facing any of the manufacturers, is the lack of stability in the Canadian marketplace. What used to be benchmarks and barometers to forecast your business no longer seem to be valid."

Although home-market sales are in the doldrums, there's a bright side to the situation: A stalled economy and the resulting weak Canadian dollar makes producing vehicles for export all the more attractive. More than 85% of the 2.3 million vehicles produced annually in Canada are exported, representing 30%-plus of total manufacturing exports. Because the auto industry provides nearly 500,000 direct and indirect jobs, it's really an anomaly that the surge of Canadian exports prompted by the strong -- at least until recently -- U.S. light-vehicle market hasn't done more to turn Canada's economy around. Many Canadian plants are producing at capacity, and 1995 numbers are expected to be up vs. 1994. For the first four months of this year, Canadian facilities produced 897,905 vehicles vs. 711,017 a year ago -- a 26.3% increase. Production is forecast to rise to 2.5 million vehicles in calendar 1995 and 2.6 million in calendar 1996.

Canadians purchased 1,250,373 cars and trucks in calendar-year 1994 -- 5.2% higher than 1993's tally. But 1995 numbers have lagged consistently behind 1994 when, by all estimates, they should have continued to rise since the Canadian market historically trails the U.S. by about six months.

Canadian automakers started 1995 expecting modest sales growth this year -- about 5% vs. 1994. All have lowered their forecasts. GM of Canada, which originally projected a 6% uptick, planned in late May to release a lower forecast. In January, Ford Motor Co. of Canada Ltd. looked for a 5% boost but now expects only a 1% to 2% gain. Both Toyota Motor Mfg. Canada Inc. and Honda Canada Mfg. Inc. now say sales likely will be relatively flat this year, and Chrysler Canada Ltd. says total industry sales will be down slightly.

Second-half sales will have to be strong simply to break even with 1994, says Chrysler Canada President G. Yves Landry. "I think there's a potential for it to be stronger," he says. "I'm more optimistic with what we see out there. The Canadian dollar's strengthening is going to help."

From a low of U.S. 70 cents to the Canadian dollar during the last 12 months, the Canadian dollar is now worth about U.S. 74 cents. The weak dollar forced prices up, and already price-sensitive Canadians quickly closed their pocketbooks.

Taxes take a larger bite out of disposable income in Canada compared with the U.S., and gasoline prices also are substantially higher. Those two factors already have forced buyers toward the market's small end where prices are lower and fuel economy is higher. "I think prospects of the dollar in Canada reaching around 76 cents (U.S.) at the end of the year will help ease the tension, will help bring the interest rates in line," Mr. Landry says. Interest rates finally began to fall in May when the Canadian dollar began to rise. Commercial banks lowered the prime lending rate by half a percentage point to 9.25% when the dollar closed at U.S. 73.90 cents, its highest point since last October.

Ford of Canada President Mark Hutchins doesn't think the Canadian recovery has bottomed out and echoes Mr. Landry's prediction that interest rates will fall and consumer confidence will return. "There's a lot of pent-up demand, a heck of a lot of pent-up demand," he says. "The scrappage rates are at all-time highs. The average age of the vehicle on the road is about eight years.

"When you put that all together, the trendline tells you that the recovery is going to continue ... You've got low inflation, employment that's continuing to increase, an export-driven economy in which the lower dollar helps, and you've got high capital investments that are being made by all industries."

Most major automakers have and are investing heavily in Canadian plants. Canadian automakers say the North American Free Trade Agreement helped clear up definitional problems -- mainly having to do with content specifications -- that had created tension between the U.S. and Canada. It also opens up access to the Mexican market, which previously subjected Canadian-made vehicles to a 20% duty.

Despite Mexico's sickly economy, it still holds promise, says GM of Canada President Maureen Kempston Darkes. "With a population of 85 million people, almost three times that of Canada, but annual vehicle sales of less than half of Canada's, we believe that Mexico represents real opportunity for us."

Canadian vehicle production should gain momentum from the fact there are fewer model changeovers this year. That, of course, stands to be partially offset by sluggish sales of some Canadian-built models. Chrysler, for example, this year has shut down its Bramalea, Ont., plant for several weeks because the midsize LH sedans produced there aren't selling well, even in the U.S. But most vehicles produced in Canada -- including Chrysler minivans, Ford's Windstar and F-150 pickup and Gm's C/K pickup -- remain hot-selling items in the U.S.

"Investment by the automakers in Canadian manufacturing operations has exceeded C$15 billion in the past decade, with average annual capital expenditures of over C$2 billion for the past five years," says Mrs. Darkes. "Automotive trade relationships have allowed manufacturers to leverage Canadian advantages such as the Canadian health care system, the value of the Canadian dollar and the close proximity and easy transportation access to major North American manufacturing and population centers ... The challenge for Canadian operations is to continue to enhance our competitiveness and earn new investment, while providing significant returns to the parent."

Cost-conscious, cautious Canadian consumers are making things tough for Japanese automakers in Canada. The ever-appreciating yen has forced Japanese automakers to raise prices here, as they have in the U.S., resulting in Big Three automakers snapping up market share. Chrysler's slice climbed to 19.7% in 1994 from 19.1% in 1993, its highest combined Canadian car and truck market share in 18 years; Ford's share rose by 0.4 points to 21.7%; and GM picked up 0.8 points for a 32.6% share.

Honda and Toyota both are tackling the price issue by trying to source more parts in North America. "We need to become much more of a North American-based company," says Toyota Canada President Toshio Kunii. "So far, we have been categorized as an importer. We need to strive to change that perception."

Toyota is investing C$600 million in its Cambridge, Ont., facility and will hike production capacity from the current 85,000 to 200,000. Toyota now only produces Corollas in Canada, but says it definitely will add another vehicle when construction is completed in two years. Speculation is it will be the RAV4 sport/utility vehicle or Lexus ES300.

"As a country, Canada has got to make damn sure that we keep our competitive edge, that we guard against over-regulating, that we try to harmonize the standards," Landry says. "We must make sure that we don't as a country -- I'm talking domestic industry now -- that we don't get too cocky."

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